The labour theory of value – the infamous theory devised by the leader of the frankfurt school of witchcraft and wizardry, Karl Soviet Marx. It rejected the basic economics of supply and demand and aimed to abolish money in favour of running the economy solely on stolen privately owned toothbrushes. Or, something like that at least.
The labour theory of value, or better referred to as the law of value, is the cornerstone of Marxist thought, yet is so commonly not understood, even by a lot of leftists. And I mean can you blame them, have you seen the size of Capital? Fuck reading that, the new season of black mirror’s aired and - oh noooo <screenshot of a bad black mirror episode>
Seriously though, the law of value is complicated. Like, really complicated, so much so that I’m not even going to call this a basic introduction to the law of value, it’s more a basic introduction to the basics of an introduction to the law of value. As such, it seemed appropriate to try and make a video to explain these concepts to complete beginners. Hopefully this can be the first step in your understanding of what Marxism is really about. Not the noble plight of the worker, not glorious revolution, but cold hard economics. Fun, right? Well, give it a chance.
Really quickly, the animations for this video were done by the super cool youtuber AnActualJoke. She makes phenomenal content so please go check her out. Anyway, lets go.
What even is the law of value?:
In essence, the law of value is a theory developed to explain the origin of value and it’s behavior in Capitalist society. As Capitalism is a social relation, it follows that the law of value is primarily an analysis of social relations. The value by which goods exchange itself is only a social construct - if you take an object with market value into the wilderness, does it still have a market price? An exchangeable value? How could it, there’s no one to sell it to. The law of value does not posit some idealized society to be realized through conventional political action like say classical liberalism or anarcho-capitalism. All Marx, and Engels for that matter, did were look at what has happened in history empirically, look at the society they live under empirically and then explain why it worked the way it did, predicting what it will lead to in the future. There is no moral concern involved, and as such when Engels looks at slave society for example from 3000 years ago, he never talks about them as a moral evil of any kind and in fact condemns those who do – he, as well as Marx, is only concerned with what bought them into being and how it lead society to serfdom. With Capitalism, the point is not that it is evil and must therefore be opposed, but that it is volatile and will collapse.
So, the law of value is in essence an explanation for the workings of the Capitalist mode of production based on empirical data examined through a philosophical lens. There are however many, many aspects to it that all tie into one another in complicated ways. We will not be covering all of them, and the ones we do cover will hardly be done justice. As such, if you’re serious about understanding the law of value, and by extension Marx, it’s imperative you read him. It’s worth noting too that the justifications for the law of value go even beyond the simplified concepts we’re covering here – Though Marx’s law of value isn’t itself a metaphysical theory, it draws heavily on metaphysics from before him, so If you really, like reeeally want to understand Marx, you should read Hegel, and as Hegel is only a continuation of Kant you’d need to read him as well, and for Kant you should probably read Hume too and...fuck. [cut to camera] Just start with the Greeks before you read Marx, fuck it.
Commodities and Capital:
It’s best that before we get further into things we define two commonly used terms in the theory – Commodities and Capital. A commodity is simply a good that is produced specifically to be exchanged for a profit. Capitalism as a mode of production is this kind of production – commodity production – generalized and perpetuated to the whole of society. Money is the universal commodity that is used as a medium for representing exchange values of all different commodities, going by the classic understanding of Marx. This definition today might be expanded to accommodate the fact we’re no longer on a gold standard, but as already stated we’re trying to keep things simple here! Capital under the law of value is money and resources used to make more money, or more exchange values. The money invested into buying more raw material, the means of production themselves, the wages, these are all used as capital in commodity production, as they are serve the purpose of creating value. Under Capitalism, the pursuit of capital accumulation is an end in itself. Like value though, capital itself isn’t anything tangible, it’s a social construct. Tools used to make things are always tools regardless of where they are, but it’s only under specific social conditions – the relations of commodity production – that these tools fulfill the role of capital.
There are three types of value in Marx’s theory – use value, exchange value and market value. These are all distinctly different but all related. The last two are most important, as they are actual quantitative values, while use value is more abstract. For Marx, something has use value if it’s useful to society in some way – that’s it. He isn’t concerned with what society considers to be useful, or why they do, just that they do. Every commodity produced under Capitalism has, to some degree or another, a use value, because otherwise it wouldn’t be produced. However, this use value does not determine the price of the commodity produced. The commodity also has an exchange value, defined as the ratio with which this one commodity exchanges with all other commodities – for instance, one ten cars to one house, three books to five grains of rice. Market value then, otherwise known as price, is this ratio expressed in the form of money, after fluctuations in supply and demand are factored in which we’ll delve into later. It’s obviously a lot easier to just know one price of something rather than ratios for every commodity you’re interested in. So it’s the exchange value that gets translated into a market price, rather than any kind of use value. This is important as it’s one of Marx’s main contradictions of Capitalism, however we won’t be exploring it’s consequences here. What determines exchange value then? The labour time that goes into producing the commodity.
This point is often one that receives the most scrutinize from Marx’s critics, so perhaps it’s worth setting aside some time to justify labour being the source of exchange values in society. There are two lines of reasoning Marx used here – firstly, take any two commodities, say gold and wheat. Their exchange values are expressible in ratio’s of each other, so maybe three bales of wheat to five bars of gold. This is really expensive wheat but bare with me. What we’re then asserting from that, perhaps without realizing, is that these two quantities, in order to be equal to one another, must then be equal to some third thing independent of both. This sounds weird, but in a mathematical context it makes sense. Take two equations, 5+5 = 20/2. These two equations are equal, but only because we know that they both individually are equal to 10. How about a geometric example – the area enclosed by a rectangle can be expressed in a certain number of right angle triangles, but this is meaningless without first knowing how you attain the area of a right angle triangle (half the width times the height). So, returning to the commodities, it then logically follows that the value of each individual commodity, if they can be expressed as ratio’s of one another, must therefore be equal to some third value. Why this third value is labour Marx explains as clearly as possible:
“As the exchanble values of commodities are only social functions of those things, and have nothing at all to do with the natural qualities, we must first ask: what is the common social substance of all commodities? It is labour.”
That’s not to say all labour, however. Not all labour produces exchange value – only labour that produces use value, otherwise known as social labour. The exchange value of a commodity for a society is determined by the average time it takes society to produce the commodity. As such, if you personally take fifteenth minutes to produce a commodity that society can produce in ten minutes on average, the commodity you’ve produced does not count as having any additional value, and still sells on the market based on the exchange value attained by the average labour time. This average labour time to produce a commodity is referred to as the socially necessary labour time, and it’s usually the task of private producers to try and produce under this socially necessary labour time to properly compete on the market. The higher time it takes society on average to produce something, the more valuable it becomes, as it’s harder to obtain in a given quantity. If however technological advancement halves the time taken to produce a commodity, it’s exchange value likewise drops as it’s much easier to obtain the same number of commodities than before.
Supply and Demand:
Supply and demand are often the be all end all by a lot of people in regards to how price works, but imagine for a moment an economy where it literally is just supply and demand that give us the prices of commodities. Well, as you’d expect, when there’s a higher demand than there is supply, competition amoung buyers is higher than it is amoung sellers and prices rise. Likewise in the opposite case, when supply is greater than demand, competition amoung sellers causes the prices of commodities to fall. But now the question is raised, what is a rise and what is fall in price? What is even a high or a low price? A grain of sand is big when examined through a microscope, and a tower is small when compared to a mountain. Take a business – this business produces commodities and sells them on the market one day for a profit of £110 per item. The next day, they return a profit of £130, and the next a profit of £200. With just this information alone, how can we say what a large or small profit is? Well suppose that we now know that each commodity costs £100 to produce. The first profit is now modest, the second large and the last astronomical. Thus is becomes clear that it’s the cost of production that provides the set point by which the relative magnitude of profit is based. This set point can be considered the equilibrium point of the supply and demand, the point by which supply and demand fluctuate around. This equilibrium point is the exchange value of the commodity, so the market price is the exchange value represented in money with also any fluctuations from the equilibrium point included. However, this distortion from the exchange value does not only come from supply and demand, but also things like marketing, branding, culture etc, which all too would provide meaningless alterations on price without a set point. It is in between the cost of production and the market value that all of these distortions are located, and without any of them, products would be sold at their cost of production. The question then follows, assuming an equilibrium in supply and demand, what is the origin or profit if commodities sell at the cost required to produce them? Well that’s explained by wage labour.
A fundamental aspect of Capitalism is that there is a class which must sell their labour power on the market in order to sustain themselves, as they have no means of production themselves. Under pre-capitalist economic formations, even while there could still be classes, most people would own their own means of production with which they could directly produce for themselves their means of subsistence. The means of production under Capitalism however are owned by a minority in society, the Capitalists. This new arrangement, historically specific to Capitalism, was established through what’s referred to as primitive accumulation – essentially the forceful appropriation of tools and land from the peasants to the ruling classes of the time, which have then over the centuries been exchanged around between different Capitalists. As the working class now has no means of production for themselves, in order to sustain themselves they must become employed by someone who does own means of production and receive a wage for their labour. However, labour itself is not something tangible, and cannot be sold, so instead workers sell their ability to labour, referred to as their labour power. Here, labour power is treated as a commodity – a good to be sold. Like any commodity then, it has a cost of production, and this is just the cost of subsistence for the worker providing the labour. However, labour power is a very unique commodity, as it directly involves human interests and therefore is subjected to attempts to raise the value through acts of class struggle, like for example strikes. At it’s most basic, wages cover food, rent and transport, however in first world countries where there have been many decades of class struggle, this base line cost of subsistence has been risen to include more and more luxuries, which is why Capitalists have been forced to start purchasing labour power in third world countries where this dynamic of class struggle for higher wages has not yet played out. As we’ve established, workers sell their labour power, and they do so in measurements of time. For instance, their may exchange twelve hours of labour power for a wage that covers their subsistence. The Capitalist then has this full twelve hours to extract as much value from the worker’s labour power as possible. From the point of view of the Capitalist, they invest the capital of raw materials, wages and tools, ie all the money that will go towards creating more money. In order to make a profit, they must first recover all the invested value in production, and then all value created by labour after this point of breaking even is considered a surplus. As such, enough commodities may have been produced to cover the cost of investment at only eight hours of labouring, however the worker has sold their labour power for twelve hours, making these last four hours dedicated to creating surplus value that is retained by the Capitalist. As such, the worker produces more than what they are paid in wages, and are exploited. So, to summarize, the origin or profits are the surplus labour extracted by workers after they have paid off their own wages.
Conclusions of Marx’s Value Theory:
If you’ve managed to keep up through this point into the video, then congratulations, however you may be wondering – what can you actually do with any of this? How does it relate to the real world? Well, it’s from the law of value that Marx was able to make predictions about the development of the Capitalist economy as a whole. While we can’t explain each one in detail here, we can briefly outline the ones that are key and how we might see them in the world we live in.
Marx bases almost of his predictions around the commodity having an internal conflict between it’s intrinsic exchange value and it’s use value. In simple terms, this refers to the fact that what may be profitable for producers, is not always useful for consumers. The most obvious example of this might be something like the housing crisis, having more empty homes than we have homeless. Or perhaps world hunger with a large over abundance of food produced. More minor examples of this contradiction crop up in things like planned obeisance – building products with the intent for them to eventually wear down or break in order to force consumers to continually repurchase the same product. It should be obvious that the consumer gains no benefit from this, but it’s something commonly carried out by the most successful companies in order to maximize profit. This concept however touches on not one, but two predicted problems. Not only does planned obsolescence increase profits, but they also keep perpetual consumption in motion. It’s obvious that in order for the Capitalist economy to function, people must continually purchase products on the market, not just once but continually over long periods of time. This is why car manufactures reserve their ideas for new features on a car one year to sell them to you the next year in a new model, or iphones are built to break just in time for the next one to come out. The problem with this logic in production however is that it is fundamentally unsustainable, even if we ignore external factors like natural resources and focus solely on the internal workings of the social system. One of the predictions proposed by the law of value is a tendency for rates or profit to fall over time, which has been empirically proven to be happening in our modern society. The result is a need for producers to sell a higher quantity of product in order to attain the same amount of profit, but of course there’s only so much that people need to buy. It’s difficult to sell someone more than they need, and though this is more or less why advertising exists, it can only off set the problem. There’s a further exacerbation here though when coupled with a continually increase of technology in production. Technology in production under Capitalism serves to increase the efficiency of the worker, and allow them to produce more of a commodity in the same amount of time, or allow the Capitalist to employ fewer workers to produce the same amount. Sometimes it can go further than this, and replace the worker altogether. As such, we have an increase in the amount which we produce, yet along side it a decrease in the amount of workers being paid wages which they use to purchase goods on the market. As already established, we already trend towards producing more than people can buy, but now as technology increasingly advances the problem becomes worse on both fronts. What’s more though is that as we approach the capabilities to completely automate production, we’re faced with the problem of no longer needing the manual labour of millions of workers. The ability to end the need to work to sustain ourselves becomes a crisis, rather than an achievement that mankind had previously striven for throughout history.
Of course the ultimate idea is that, eventually, these problems and many more not covered here will lead to the collapse of the Capitalist mode of production due to internal crises, however Marxism must not be thought of as some idea to construct a new society that merely remedies these problems, thus making it morally superior in some way. Marxism is first and foremost an analysis of Capitalism and the laws under which value as a society relation operates. The idea that Capitalism will collapse, as Marx said, under the weight of it’s own contradictions, is just a logical conclusion drawn on from the initial analysis. Any ideas about the concept of Socialism stem from simply being what Capitalism is not, and not from the notion that they might be better in some way. As such it follows that any attempts at constructing a Socialist society hold no bearing over Marx’s analysis of Capitalism, because what was analyzed remains unchanged and still follows all the same rules that lead to any attempt being formed in the first place. That’s not to say the law of value is historically deterministic though, saying that, as the saying goes, Communism is inevitable. Rather we as a society are left the choice of progressing onto Socialism, or being dragged into Barbarism. All Marx says is that Capitalism will collapse, not what it will lead onto.